AOL’s Patch Aims To Quintuple In Size By Year-End

Patch, which has already established itself as the biggest network of neighborhood blogs in the country since being acquired by AOL last summer, plans to accelerate its growth dramatically. Patch President Warren Webster tells us the company will add a staggering 400 hyperlocal sites over the next six months, bringing its total to 500. In order to accomplish its goal, Patch will hire 500 more reporters in 20 states, making it — by far — the biggest new hirer of full-time journalists in the U.S.

AOL (NYSE: AOL) had already disclosed that it intended to invest $50 million to expand Patch this year, but the company hadn’t said exactly how it would allocate that cash. Back in April, for instance, when Patch had 46 sites in five states, Webster told us that the company expected to be “in hundreds of towns” by year-end but wouldn’t be more specific.

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Webster says that Patch is selecting towns to expand to based in part on a 59-variable algorithm that takes into account factors like the average household income of a town, how often citizens vote, and how the local public high school ranks; the company is then talking to local residents to ensure that targeted areas have other less quantifiable characteristics like a “vibrant business community” and “walkable Main Street.” Patch hires one professional reporter to cover each community; each “cluster” of sites also has an ad manager who is the “feet in the street” selling ads.

The network, however, says that to date it hasn’t been focusing on generating revenue. “Our philosophy from day one was that the first priority should be to build an engaged audience through journalism,” Webster says. “The second phase is to leverage that audience for local businesses that want to target customers. We’re at the beginning of phase two now.” Right now, Patch is letting local businesses buy banner ads and also letting them set up their own business listings, which they can convert into ads.

Patch won’t say whether any of its existing sites are profitable, only that the sites are exceeding “every metric we set.” But Patch does say that it costs 1/25th the amount to run a Patch site that it does to operate a daily newspaper in the same town, even when costs associated with publishing a newspaper, like delivery trucks and printing presses, are taken out. Patch has been criticized for overworking its reporters, but Webster says that on average 75 percent of them make more money than they did at previous journalism jobs.

During our conversation, I asked Webster, along with Jon Brod, the president AOL Ventures, Local & Mapping, why Patch believed it needed to expand so quickly; the two men said that scale was important in part because it provides additional revenue opportunities, including the ability to sell inventory across the country to national advertisers and to syndicate some of the data it is collecting on the communities where it has sites. They also said that it helped in establishing the Patch brand. Much of the initial $50 million investment went to building up the infrastructure needed to operate the sites, along with associated start-up costs, like setting up a recruiting team, meaning it is becoming less costly to launch additional sites.

“We believe that every town in American should have a Patch ultimately,” Webster says. Won’t that mean Patch will increasingly be going up against other aspiring local news startups? The two men say that’s not a concern and that its sites are in fact doing the best in towns where there are several other local news and information sites because “people (there) are conditioned to go online.”

— Hires: Patch is also announcing several key hires today to facilitate the expansion. Marcia Parker, an assistant a former assistant dean at the Graduate School of Journalism at the University of California, Berkeley, is joining the network as editorial director of the west coast region; heading up the south region is Tim Windsor, previously the director of digital strategy at Johns Hopkins University; the northeast is being led by Anthony Duignan-Cabrera, formerly the editorial director at CNNgo.com; and the midwest is led by Sherry Skalko, a former editor of the Online News Association’s Journalists.org. All report to Brian Farnham, Patch’s editor-in-chief.

“Patch does says that it costs 1/25th the amount to run a Patch site that it does to operate a daily newspaper in the same town, even when costs associated with publishing a newspaper”

That’s great, but there are still some big hurdles for Patch in terms of making the most of that cost advantage:

1) Newspaper ad teams have a better chance of having strong relationships with local businesses than AOL

2) Building those relationships doesn’t scale, and many local businesses still don’t trust online advertising or listings (even local newspapers have trouble selling online inventory to their print clients)

3) Even when local businesses are interested in online, there are so many free or cheap alternatives out there (AdSense, Twitter, self-supported websites that show up in search). What’s the value that Patch is offering local advertisers? A chance that their banner might be read by someone checking out the Little League scores?

My greatest fascination with Patch (given my neighborhood site in a big city) will be watching how they deal with the big cities. Maybe they’ll always work on the edges but I doubt it. I also doubt there will ever be a Patch Capitol Hill but who knows.